Trades of the Week: Jan 8 - Jan 12, 2024

January 13, 2024

I came into this week short WGMI and long QS, TEAM, AMD, DYN and TANK.  Those essentially used up all my non-margin buying power. As I mentioned in a position sizing discussion on the Canadian version of SwingTradeBot, I don't like to be on margin overnight.  But after initiating a few of more trades early in the week I soon found myself needing to lighten up -- late Tuesday my brokerage pinged me that I had exceeded my overnight buying power (a Regulation T violation).  So I had to choose some stocks to sell or the brokerage would have done it for me. 

My account at that point was up 9.6% YTD with the majority of that being unrealized gains.  So I was happy to take some profits off the table & decided to sell half of several of my positions. 

AMD & TEAM followed through nicely from last week.  Somehow they're both trading in lockstep -- they had very similar setups (pulled back below their 20 DMAs and then reclaimed that MA) and have both risen back to their highs from before their dips.  Here's the AMD chart:
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One nice thing about both of these setups is that they presented really tight stops on high priced stocks.  Given my position sizing methodology (Percent Risk model) that provides me the opportunity to put a lot of money to work while still only risking my usual 1% of my equity -- the tighter the stop, the more shares I can buy.  In the case of AMD, I entered above the January 4th candle (and 20 DMA) at $138.34 with a stop just under that candle at $133.75.  So my initial risk (1R) was $4.59 (AMD's Average True Range is 4.90 -- a ~1 ATR stop is about the tightest I'll ever use).  I sold half of my shares at $149.21 -- so that's a 7.85% ($10.87) move for AMD and a profit for me of 2.36 times my initial risk (2.36R).  It pulled back a bit since my sale and I'm currently sitting on a 5.94% gain on the other half of the shares.

TEAM is very similar and I'm currently holding on a 5.22% gain on my remaining shares.

WGMI another carryover from last week was the most frustrating trade of the week!  Like I mentioned last week, I was using WGMI as a way to play the unwinding of the parabolic move the Bitcoin miners had.  I nailed a short in MARA in the last week of December and I thought I'd press my luck and go back to the well on what I thought was a dead cat bounce.  WGMI dropped 17% on the week but unfortunately it took a wild path to get there and shook me out.  I got tired of the chop on the 10th and closed the trade for a 0.22R loss.  Thankfully I did so then because it gapped up the next morning on news of the Bitcoin ETF approval.  That gap would have stopped me out for about a 1.3R loss.  But the frustrating part is that the miners finally broke after the gap up -- a classic sell the news reaction. 
 
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I saw the gap up when the market opened but I had to leave to go to a doctor's appointment.  So I didn't see the action until the big slide had already happened.  In hindsight, I should have put in a short sale order below the previous day's candle because I suspected we might get a "gap & crap".  Oh well!  I hate when things like this happen -- I have the right idea but the price action just doesn't cooperate.  But I do take solace in the fact that I was in the right place and on the right (short) side. 

I took a few other trades during the week with mixed results on a whole:
  • I bought GFS on the 8th after it made a Non-ADX Pullback but ended up selling that outright for a small gain when I got that Reg T warning (0.24R gain)
  • I also bought NET on the 8th on a Non-ADX Pullback.  Took a partial on the 9th and my trailing stop got hit on the other half on the 11th. (1R gain)
  • Bought OMGA on the 10th after it made a Calm After Storm.  It was working nicely on day 1 but reversed hard on day 2.  I decided I didn't like that action and took a 0.8R loss
  • Bought TOST on the 10th.  This was one of the "Intraday Runners" I wrote about in my 2023 recap.  It had a pretty big gap up thanks to an upgrade.  When I saw it close the gap and start bouncing I took a bet on it reclaiming the highs of the day.  It failed to do so!  (1R loss)
  • I also closed out TNK.  This was another one where I sold half on Tuesday.  It kept trying to roll over mid-week and I finally thought the whole "buy the shippers because of Middle East strife" trade had gotten long in the tooth, so I exited on Thursday. (1.2R gain)

It ended up being a "meh" week.  I was up a quick 5% for the week by Tuesday but after pullbacks, especially an intraday swoon on Thursday, I ended the week only up 1.2% and 5.39% YTD.

PS: There may not be another of these posts until the first week of February because I'll be on vacation in Australia.  I'm not sure if I'll be doing much trading although I do already have some orders in for Tuesday.  

Comments

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Magneto296 23 days ago

Regulation T, and several positions, mentioned in trading blog for week Jan8-Jan12. 
Quick question, is it more difficult to focus on managing positions, beyond a certain number?
Do you think that number is best managed with experience?
Is it mostly setting stop/limit orders, that provides the safety factor?

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TraderMike 23 days ago

I've never been subject to Reg T, so I can't speak from experience.  But I'm sure it really complicates matters.

There's a sweet spot as far as number of positions.  William O'Neil in "How to Make Money in Stocks" gives some guidelines for number of positions based on how much money you're trading with.  Too many positions and any one winning trade doesn't really move the needle.  A large number of positions is also more work & possibly nerve wracking. But having market-held stop losses are a huge help.

For me 4 or 5 positions is an optimal number.  Due to the way I size my positions, usually 4 to 5 positions will use all of my non-margin buying power.  Once/if I get to 7 positions I start getting nervous because I'd be on margin and have a lot of open exposure.  Stops are a must but there's always the risk of something gapping past your stop price.

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